Assessing your Age Pension eligibility
Centrelink determines your Age Pension payment and eligibility by assessing your income and assets under each of the means tests. There are certain income and asset-free thresholds that apply to your living situation (single, couple, etc.). If you have income and assets over these thresholds, your payment is reduced.
• Under the income test; your payment is reduced by 50 cents for every dollar over the threshold you receive.
• Under the asset test; your payment is reduced by $3 for every $1000 you exceed the asset value threshold.
You are then paid the lower amount of the two assessments, however, should one calculation return a zero payment, then you will not receive any Age Pension.
The income deemed by Centrelink to be received from financial assets is then added to income that you may receive by any other means.
Financial assets to which the Centrelink deeming rate is applied include:
• term deposits
• accounts at financial institutions, such as banks and credit unions
• friendly society bonds
• managed investments
• loans, debentures and managed investments
• account-based income streams commenced after 1 January 2015
• superannuation and rollover funds assets if over Age Pension age held if you are of Age Pension age
• gifts (if invested in income-bearing products)
• securities and listed shares
• unlisted public company shares
• gold, silver or platinum.
This income is then assessed as part of the Age Pension means test and will ultimately determine whether or not you receive an Age Pension and if you do, how much of an Age Pension you will be paid.
Why are Centrelink deeming rates used?
By using Centrelink deeming rates rather than actual returns, the process of assessment is streamlined, with Centrelink being able to request less paperwork from customers and ascertain payment rates more quickly. Even if the actual return on investments is greater than the deemed amount, the additional income is not assessed.
How are Centrelink deeming rates applied?
The following is an example of how deeming rates are applied:
Paul and Jane are in receipt of the Age Pension and have a combined total of $90,000 in financial assets. This is split between $30,000 in Paul’s savings account, Jane’s term deposit of $20,000 and a jointly held managed investment of $40,000 – all of which pay a different rate of interest.
The total value of financial assets =
Apply the lower couples threshold of $88,000 and multiply by 0.25%
Apply the higher couples threshold to the remainder ($90,000 – $88,000 = $2000) and multiply by 2.25%
Determine the total deemed income by adding $220.00 + $45.00
This income is added to any other income, such as that from wages, that Paul and Jane earn and the total is used to determine their Age Pension payment. For every $1 of income Paul and Jane earn above the relevant threshold, their Age Pension payment will be reduced by 50 cents.
How are Centrelink deeming rates set?
Centrelink deeming rates are set by the Minister for Social Services and are monitored regularly to ensure that they reflect the returns on a wide range of investments available in the market. This means that they can be raised or lowered depending on the average markets returns and to reflect the interest rates (or cash rate) set by the Reserve Bank of Australia (RBA). However, although the returns and interest rates are regularly monitored, the reality is that Centrelink deeming rates are not commonly amended. And although they can be amended at any time, to minimise disruption, any changes usually coincide with the indexation of Age Pension payment rates or income and asset thresholds. The thresholds are also indexed annually, on 1 July, in line with the consumer price index (CPI).
Does everyone benefit from Centrelink deeming rates?
Many older Australians who rely largely on the Age Pension to fund the majority of their retirement income believe that deeming rates are unfair. This is due to the fact that the actual returns on savings accounts and term deposits are often lower than the Centrelink deeming rates. This means that they are deemed to be earning more income from their savings than they actually are and as a result, their Age Pension payment is reduced.
One way to combat this issue would be to reduce, at the very least, the Centrelink deeming rate that is applied to the lower asset threshold, as it is often those with the least in savings that are affected the greatest. However, it seems unlikely that this will happen any time soon. In fact, the current Government did have a plan to reduce considerably the asset thresholds that apply to Centrelink deeming rates. From the 20 September 2017, it was the intention to reset the lower thresholds to $30,000 for singles and $50,000 for couples. This measure has now been abandoned and will not be proceeding.
If I don’t receive an Age Pension, do Centrelink deeming rates matter?
Even if you do not receive an Age Pension, Centrelink deeming rates may still be applied to your financial investments to ascertain your income and therefore your eligibility for a Commonwealth Seniors Health Card (CSHC). Self funded retirees (those who do not whose income falls below the current thresholds, which are indexed on 20 September each year, will receive a CSHC that will provide concessions on prescription medicines, health services, utilities, rates and many other everyday cost.
Can I be excluded from Centrelink deeming rates?
Under certain circumstances the Minister for Social Services can grant an exemption to deeming rates and will decide when the exemption will commence. These circumstances are:
• when a financial investment has failed
• certain superannuation investments where funds are fully preserved or inaccessible
• accounts that only contains funds paid to participants for a funded package of support through the National Disability Insurance Scheme
Once an exemption from the Centrelink deeming rates has been granted, the actual return on your investments is what is used to determine your Age Pension eligibility and payment. Deeming exemptions do not apply to the assessable asset value of any financial investment.
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